Cross Marginal Product of Labor, Part One

There is a common assumption that the emergence of developing economies in general and China in particular will force the developed world to focus on a fourth-generation information based economy and the baristas and yoga instructors who service it.

However, the peculiar nature of China’s growth make that assumption incorrect. If China were following a smooth “organic” path it might make sense that they would force us into the that future. China, however, is pursuing an inorganic forced growth strategy that could just easily propel us into our recent past.

It makes a lot of sense in this environment for the much of the developed world to forget about information and focus on more basic resource extraction: mining, drilling, farming, etc.

The economic boom in North Dakota is an obvious example of the opportunities here. Tyler Cowen points us to a lesson from down under

MANDURAH, Australia—One of the fastest-growing costs in the global mining industry are workers like James Dinnison: the 25-year-old high-school dropout from Western Australia makes $200,000 a year running drills in underground mines to extract gold and other minerals.

. . .

A precious commodity himself, Mr. Dinnison belongs to a class of nouveau riche rising in remote and mineral-rich parts of the world, such as Western Australia state, where mining companies are investing heavily to develop and expand iron-ore mines.

I think Krugman is wrong about computers and AI in that essay, but a lot of it seems like it might be surprisingly accurate. Not bad for an essay written in 1994.

In any case, this would certainly be an interesting set-up, and China is certainly driving the rise of resource-export industries elsewhere. I wonder how long their “work-shop of the world” goals will last, though, considering that their labor supply and costs are only going up.